Malawi impresses IMF--gets US$18 m
By GERALD NAMWAZA - 19 December 2007 - 13:05:38

INTERNATIONAL Monetary Fund (IMF) Monday approved a US$18.1 million (about K2.6 billion) disbursement to Malawi under Poverty Reduction and Growth Facility (PRGF) arrangement.

The executive board of the IMF says it was compelled to dish out the cash after Malawi successfully met the economic targets in the fourth and fifth review of the three year programme started in 2005.

“The completion of the review enables the release of SDR 11.45 million (about US$18.1 million), bringing total disbursements under the arrangement to SDR 33.4 million (about US$52.9 million),” reads part of the IMF statement.

Following the executive board discussion on Malawi, Takatoshi Kato, Deputy Managing Director and Acting Chair praised the country for its unflinching resolve to grow the economy.

"Malawi has shown commendable performance under its PRGF-supported program. Economic growth remains high and inflation has continued to decline. This should continue to support Malawi's poverty reduction and development efforts,” Kato says.

This should come as good news to Finance Minister Goodall Gondwe, who last month in Blantyre, told journalists the economy was on the right track and that the IMF was impressed with the country’s progress.

Inflation has gone down from 9.6 percent in January this year and was at 7.2 percent in October while the local economy is estimated to grow at about 7 percent, a situation that prompted Reserve Bank of Malawi (RBM) to cut the bank rate from 17.5 percent to 15 percent last month.


"The domestic debt burden has declined further, though somewhat less rapidly than expected. Fiscal policy implementation has been supported by strong revenue performance, and the recent improvement in the government's control of payroll execution has facilitated the lifting of the program's ceiling on the wage bill,” says the IMF statement.


However, IMF says government's domestic borrowing targets came under pressure from unforeseen challenges, including delays in aid disbursements and unexpectedly high interest payments.

"The improvement in the macroeconomic environment has permitted the monetary authorities to bring inflation down to single digits while maintaining a stable exchange rate. Inflation is expected to remain in single figures.

However, monetary policy implementation came under some strain in mid-2007, and the authorities need to address the ensuing rapid monetary expansion.

"The program envisages economic growth in 2007 /08 spreading beyond the agricultural sector and remaining high. Further declines in the domestic public debt burden should continue to support robust private sector credit growth,” Kato says in the statement.

The IMF, has since advised government to put greater emphasis on structural reforms and improve public financial management in addition to creating a better business environment.

The three-year PRGF arrangement for Malawi was approved on August 5, 2005, for a total amount of SDR 38.2 million (about US$60.4 million) to support the government's economic program for 2005-2007 after being suspended in 2001 when the previous government went off track.

Malawi qualifies for Millennium Challenge Account
BY DICKSON KASHOTI
07:55:49 - 14 December 2007

Malawi is now eligible for a large-scale grant from the Millennium Challenge Account, bringing hope for a significant new flow of funding that could have a major impact on Malawi’s efforts to reduce poverty through sustainable economic growth.

However, United States of America ambassador to Malawi, Alan Eastham could not say how much Malawi expected to receive at a press conference convened to announce the Millennium Challenge Corporation decision.

He said the amount would depend on negotiations between the MCC board and the government of Malawi.

But information made available to The Daily Times indicate that some countries have received amounts ranging from US$285 to US$ million 700 for a five-year period.

Eastham said Malawi’s eligibility for the MCC assistance means the country may now begin the process of applying for a large-scale grant, popularly known as compact, under this foreign aid program funded by the US government aimed at reducing poverty through economic growth.

“Malawi’s selection is in recognition of the substantial steps taken by the government of Malawi towards addressing corruption and putting in place other sound policies to promote economic development,” Eastham said.

Malawi has scored 54 percent in its control of corruption, 80 percent in rule of law, 68 percent for voice and accountability, 59 percent in political rights and 65 percent in civil liberties, according to rates from the Freedom House and World Bank Institute.

But Eastham said although the announcement of the eligibility is an essential step toward obtaining an MCC compact facility for Malawi, it does not guarantee funding, saying the MCC will ask the government of Malawi to begin a broad based consultative process to develop a proposal for a five-year program.

“There is no pre-established dollar figure for Malawi’s compact at this stage. The level of assistance the MCC could eventually provide will be based on the strength of Malawi’s proposal, as well as the availability of funding. Negotiating compact agreement is a complex and often lengthy process,” said the ambassador.

Eastham then applauded Malawi for the feat, saying this is the only country in the world that has qualified for the eligibility of MCC funding.

The MCC board has also selected Mauritania to participate in MCC’s Threshold Programme, a programme designed to assist countries that do not yet qualify for the compact grants but that are close to qualifying and have demonstrated a commitment to enact reforms necessary to improve policy performance that may eventually help them qualify for the compact assistance.

The board also welcomed MCC’s intention to invite Albania, Paraguay and Zambia to submit a stage 11 threshold proposal to build upon their current threshold programmes that expire in 2008.

The following countries are participating in the MCC programme and were selected as eligible for 2008 compact funding: Armenia, Benin, Bolivia, Burkina Faso, El Savador, Georgia, Ghana, Honduras, Jordan, Lesotho, Madagascar, Mali, Moldova, Mongolia, Morocco, Mozambique, Namibia, Nicaragua, Senegal, Tanzania, Timor-Leste, Ukraine and Vanuatu.

Ending Famine, Simply by Ignoring the Experts

Evelyn Hockstein for The New York Times

The secret of Malawi’s success: heavy subsidies for fertilizer, farmers say. The World Bank had pressed for their elimination. More Photos >

by CELIA W. DUGGER

Published: December 2, 2007

LILONGWE, Malawi — Malawi hovered for years at the brink of famine. After a disastrous corn harvest in 2005, almost five million of its 13 million people needed emergency food aid.

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Ending Famine in Malawi

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Bumper Corn Harvest in Malawi

But this year, a nation that has perennially extended a begging bowl to the world is instead feeding its hungry neighbors. It is selling more corn to the World Food Program of the United Nations than any other country in southern Africa and is exporting hundreds of thousands of tons of corn to Zimbabwe.

In Malawi itself, the prevalence of acute child hunger has fallen sharply. In October, the United Nations Children’s Fund sent three tons of powdered milk, stockpiled here to treat severely malnourished children, to Uganda instead. “We will not be able to use it!” Juan Ortiz-Iruri, Unicef’s deputy representative in Malawi, said jubilantly.

Farmers explain Malawi’s extraordinary turnaround — one with broad implications for hunger-fighting methods across Africa — with one word: fertilizer.

Over the past 20 years, the World Bank and some rich nations Malawi depends on for aid have periodically pressed this small, landlocked country to adhere to free market policies and cut back or eliminate fertilizer subsidies, even as the United States and Europe extensively subsidized their own farmers. But after the 2005 harvest, the worst in a decade, Bingu wa Mutharika, Malawi’s newly elected president, decided to follow what the West practiced, not what it preached.

Stung by the humiliation of pleading for charity, he led the way to reinstating and deepening fertilizer subsidies despite a skeptical reception from the United States and Britain. Malawi’s soil, like that across sub-Saharan Africa, is gravely depleted, and many, if not most, of its farmers are too poor to afford fertilizer at market prices.

“As long as I’m president, I don’t want to be going to other capitals begging for food,” Mr. Mutharika declared. Patrick Kabambe, the senior civil servant in the Agriculture Ministry, said the president told his advisers, “Our people are poor because they lack the resources to use the soil and the water we have.”

The country’s successful use of subsidies is contributing to a broader reappraisal of the crucial role of agriculture in alleviating poverty in Africa and the pivotal importance of public investments in the basics of a farm economy: fertilizer, improved seed, farmer education, credit and agricultural research.

Malawi, an overwhelmingly rural nation about the size of Pennsylvania, is an extreme example of what happens when those things are missing. As its population has grown and inherited landholdings have shrunk, impoverished farmers have planted every inch of ground. Desperate to feed their families, they could not afford to let their land lie fallow or to fertilize it. Over time, their depleted plots yielded less food and the farmers fell deeper into poverty.

Malawi’s leaders have long favored fertilizer subsidies, but they reluctantly acceded to donor prescriptions, often shaped by foreign-aid fashions in Washington, that featured a faith in private markets and an antipathy to government intervention.

In the 1980s and again in the 1990s, the World Bank pushed Malawi to eliminate fertilizer subsidies entirely. Its theory both times was that Malawi’s farmers should shift to growing cash crops for export and use the foreign exchange earnings to import food, according to Jane Harrigan, an economist at the University of London.

In a withering evaluation of the World Bank’s record on African agriculture, the bank’s own internal watchdog concluded in October not only that the removal of subsidies had led to exorbitant fertilizer prices in African countries, but that the bank itself had often failed to recognize that improving Africa’s declining soil quality was essential to lifting food production.

“The donors took away the role of the government and the disasters mounted,” said Jeffrey Sachs, a Columbia University economist who lobbied Britain and the World Bank on behalf of Malawi’s fertilizer program and who has championed the idea that wealthy countries should invest in fertilizer and seed for Africa’s farmers.

Here in Malawi, deep fertilizer subsidies and lesser ones for seed, abetted by good rains, helped farmers produce record-breaking corn harvests in 2006 and 2007, according to government crop estimates. Corn production leapt to 2.7 billion metric tons in 2006 and 3.4 billion in 2007 from 1.2 billion in 2005, the government reported.

“The rest of the world is fed because of the use of good seed and inorganic fertilizer, full stop,” said Stephen Carr, who has lived in Malawi since 1989, when he retired as the World Bank’s principal agriculturalist in sub-Saharan Africa. “This technology has not been used in most of Africa. The only way you can help farmers gain access to it is to give it away free or subsidize it heavily.”

“The government has taken the bull by the horns and done what farmers wanted,” he said. Some economists have questioned whether Malawi’s 2007 bumper harvest should be credited to good rains or subsidies, but an independent evaluation, financed by the United States and Britain, found that the subsidy program accounted for a large share of this year’s increase in corn production.

The harvest also helped the poor by lowering food prices and increasing wages for farm workers. Researchers at Imperial College London and Michigan State University concluded in their preliminary report that a well-run subsidy program in a sensibly managed economy “has the potential to drive growth forward out of the poverty trap in which many Malawians and the Malawian economy are currently caught.”

Farmers interviewed recently in Malawi’s southern and central regions said fertilizer had greatly improved their ability to fill their bellies with nsima, the thick, cornmeal porridge that is Malawi’s staff of life.

In the hamlet of Mthungu, Enelesi Chakhaza, an elderly widow whose husband died of hunger five years ago, boasted that she got two ox-cart-loads of corn this year from her small plot instead of half a cart.

Last year, roughly half the country’s farming families received coupons that entitled them to buy two 110-pound bags of fertilizer, enough to nourish an acre of land, for around $15 — about a third the market price. The government also gave them coupons for enough seed to plant less than half an acre.

Malawians are still haunted by the hungry season of 2001-02. That season, an already shrunken program to give poor farmers enough fertilizer and seed to plant a meager quarter acre of land had been reduced again. Regional flooding further lowered the harvest. Corn prices surged. And under the government then in power, the country’s entire grain reserve was sold as a result of mismanagement and corruption.

Mrs. Chakhaza watched her husband starve to death that season. His strength ebbed away as they tried to subsist on pumpkin leaves. He was one of many who succumbed that year, said K. B. Kakunga, the local Agriculture Ministry official. He recalled mothers and children begging for food at his door.

“I had a little something, but I could not afford to help each and every one,” he said. “It was very pathetic, very pathetic indeed.”

But Mr. Kakunga brightened as he talked about the impact of the subsidies, which he said had more than doubled corn production in his jurisdiction since 2005.

“It’s quite marvelous!” he exclaimed.

Malawi’s determination to heavily subsidize fertilizer and the payoff in increased production are beginning to change the attitudes of donors, say economists who have studied Malawi’s experience.

The Department for International Development in Britain contributed $8 million to the subsidy program last year. Bernabé Sánchez, an economist with the agency in Malawi, estimated the extra corn produced because of the $74 million subsidy was worth $120 million to $140 million.

“It was really a good economic investment,” he said.

The United States, which has shipped $147 million worth of American food to Malawi as emergency relief since 2002, but only $53 million to help Malawi grow its own food, has not provided any financial support for the subsidy program, except for helping pay for the evaluation of it. Over the years, the United States Agency for International Development has focused on promoting the role of the private sector in delivering fertilizer and seed, and saw subsidies as undermining that effort.

But Alan Eastham, the American ambassador to Malawi, said in a recent interview that the subsidy program had worked “pretty well,” though it displaced some commercial fertilizer sales.

“The plain fact is that Malawi got lucky last year,” he said. “They got fertilizer out while it was needed. The lucky part was that they got the rains.”

And the World Bank now sometimes supports the temporary use of subsidies aimed at the poor and carried out in a way that fosters private markets.

Here in Malawi, bank officials say they generally support Malawi’s policy, though they criticize the government for not having a strategy to eventually end the subsidies, question whether its 2007 corn production estimates are inflated and say there is still a lot of room for improvement in how the subsidy is carried out.

“The issue is, let’s do a better job of it,” said David Rohrbach, a senior agricultural economist at the bank.

Though the donors are sometimes ambivalent, Malawi’s farmers have embraced the subsidies. And the government moved this year to give its people a more direct hand in their distribution.

Villagers in Chembe gathered one recent morning under the spreading arms of a kachere tree to decide who most needed fertilizer coupons as the planting season loomed. They had only enough for 19 of the village’s 53 families.

“Ladies and gentlemen, should we start with the elderly or the orphans?” asked Samuel Dama, a representative of the Chembe clan.

Men led the assembly, but women sitting on the ground at their feet called out almost all the names of the neediest, gesturing to families rearing children orphaned by AIDS or caring for toothless elders.

There were more poor families than there were coupons, so grumbling began among those who knew they would have to watch over the coming year as their neighbors’ fertilized corn fields turned deep green.

Sensing the rising resentment, the village chief, Zaudeni Mapila, rose. Barefoot and dressed in dusty jeans and a royal blue jacket, he acted out a silly pantomime of husbands stuffing their pants with corn to sell on the sly for money to get drunk at the beer hall. The women howled with laughter. The tension fled.

He closed with a reminder he hoped would dampen any jealousy.

“I don’t want anyone to complain,” he said. “It’s not me who chose. It’s you.”

The women sang back to him in a chorus of acknowledgment, then dispersed to their homes and fields.